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Is Ford's Momentum Stalling?

Sat, 01/01/2011 - 10:35 by John Rosevear

How did your favorite automaker do in 2010? We'll know for sure when the year's final sales numbers are released next week. But some trends have been clear for a while: Ford(NYSE: F) is going gangbusters, General Motors(NYSE: GM) is showing signs of strength, Honda(NYSE:HMC) is holding its ground despite some product challenges, and Toyota(NYSE: TM) ... well, Toyota had a year to forget.

Edmunds.com is predicting a strong finish for the industry as a whole, at least in the U.S., with December poised to be the strongest sales month since the Cash for Clunkers heyday in August 2009.

As Edmunds notes, a strong December bodes well for a stronger 2011. But there are some surprises deeper in the numbers, including a biggie: Ford's momentum may be slipping.

Don't get too worried yet, but ...Don't get me wrong, the Blue Oval's still doing well: Edmunds predicts a 5.1% year-over-year gain for the Dearborn automaker, more than enough to ensure a happy-making year-end total for the company. But for once, Ford's trailing the average. Sales across the board are expected to be up 10.2%, with Chrysler, GM, and Nissan among the biggest gainers.

For months now, Ford's sales growth has beaten the averages, not lagged. What gives? I think there are a couple of things at work here:

Ford's not the only good story anymore. Ford's products and execution have been the talk of towns all over the world for a couple of years now. The company was able to continue spending on product development through the downturn, when most competitors were forced to cut back, and its consistently excellent string of new cars and trucks, backed by great technology, have won lots of happy new customers. But others are starting to catch up. GM, Chrysler, Nissan, and Hyundai each have some good product stories of their own to tell, making the Blue Oval's sales job that much harder.

Products in transition. Ford's in the process of rolling out a new global compact car (the Focus), a completely rethought version of its signature kid-hauler (the Explorer), and a major refresh of its top-selling F-150 pickup family. It's natural that sales in those categories (and they're all big categories, at least in North America) would lag while old inventories are sold down and new products make their way to dealers. Meanwhile, potential Explorer buyers are checking out GM's excellent competitive offerings, compact shoppers will give the Chevy Cruze or Hyundai Elantra a look, and so forth -- and some of those sales will go elsewhere.

Long story short, there's both a momentary lull (which happens, and should pass) and a larger competitive issue (which is more of an issue).

Is all of that bad?Yes and no.

No, it's not bad in that Ford's management has done just about everything right, and then some. We knew all along that the company had a window of opportunity to grab sales and market share before competitors recovered, and it has done so in a way that exceeded even management's optimistic expectations. The company recovered its long-standing position as the no-questions-asked No. 2 in the U.S. market, and even challenged GM's leadership for a while.

From a business-health standpoint, the story is even better. Ford's cash on hand may have already surpassed its remaining debt, and an investment-grade credit rating is likely in the not-too-distant future. Shareholders really couldn't have asked for a better performance.

But yes, it's bad in that the competitive environment, in the U.S. and elsewhere, is starting to get a lot tougher even as economies in the developed world start to show signs of strength. Hyundai has an extremely impressive product story to tell, Nissan is gathering steam, and the still-mighty GM is furiously preparing what might be the most important product onslaught of its long history.

Ford's not in trouble; far from it. The company should continue to reap solid sales (and profit) gains for a while yet, as its overseas expansion picks up and economies continue to recover around the world. But the competitive environment, always brutal in the car business, is only going to get tougher -- and that means Ford's growth numbers may be a bit less eye-popping from here on out.

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